Skybus Now Has $160M in Startup Capital

Its planes aren't in the air yet, but Skybus Airlines says its financial position is soaring.

The company has raised an additional $72.7 million in financing, putting it "among the highest (funded) of any independent airline startup in history," said Josh Connor, an aviation-banking specialist at Morgan Stanley.

The new funding gives Skybus a combined $160 million in startup capital. By comparison, JetBlue attracted $130 million before its 1999 start.

Skybus officials declined yesterday to say how the company's money has been spent or earmarked so far.

After this latest round of financing, which ended in mid-March, Morgan Stanley owns 6.4 percent of Skybus shares. Mutual-fund conglomerate Fidelity holds 12.6 percent, and Nationwide Mutual Capital of Columbus controls 5 percent. Smaller local investors include Battelle, Huntington Capital Investment Co. and Wolfe Enterprises Inc., a subsidiary of The Dispatch Printing Company.

"Skybus was fortunate to be raising its latest round at a time with robust investor interest in the airline sector," Connor said.

One New York investor, Julian Robertson's Tiger Management, contributed an executive to Skybus in addition to a 4.1 percent investment in the company. Michael Hodge, 34, joined Skybus as chief financial officer last month from Tiger Partners, where he was a managing director.

Investors have responded to the company's management plan to offer fares so low that it will generate business from people who otherwise would not fly, said Bill Diffenderffer, Skybus chief executive.

Diffenderffer says Skybus expects to "stimulate the market" by growing it, rather than poaching customers from existing airlines on the same routes.

Diffenderffer also said the financial community has applauded Skybus' high-profile October announcement that it is purchasing 65 jets from European manufacturer Airbus. Some consultants at that time questioned the size of the order, which was valued at about $3 billion.

Diffenderffer said consultants who "expressed concern" about the purchase order "don't know our business model."

Skybus has kept details of its routes and fares close to the vest, but that might change this month if the Department of Transportation grants a request by Skybus to allow it to begin selling tickets before being certified by the Federal Aviation Administration to fly.

In a filing to the FAA, Diffenderffer estimated that the airline could begin flying by May 20.

Doug Abbey, a consultant with the Velocity Group in Washington, said it is difficult to evaluate the strong investor backing for Skybus without knowing the extent of its business plan.

"It's exciting, but we need a lot more information," said Abbey, who said that Skybus is the most anticipated startup in the industry since JetBlue.

"In the airline-startup business, one of the keys to failure has been underfunding," Abbey said. "This certainly sends out the message that this is a company that could represent formidable competition to major airlines, but all the business models in the world look great on paper. Execution is another matter entirely."

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